I've had university Econ classes, years ago, but it's not my area of expertise by a long shot.

That said, here's a question:

What do you think (or know?) would happen, to America and by extension the modern world, if for instance the majority of Americans suddenly shifted to being considerably more fiscally conservative and considerably less prone to consumerism?

Imagine for a second that all adults in America suddenly clamped their wallets shut like a nun's whoha for most anything non-essential, for just 12mos, let's say. Why doesn't really matter, it's a made up scenario, but maybe pretend they're all saving to buy homes or aggressively payoff mortgages or something sensible.

At what point/level does something that simple cause catastrophic downstream effects to our country and the world at large?

Or, to flip the question around, what do you think the is lowest amount of modern consumerism that's enough to sustain modern life as we know it? How low can consumer spending be (on things other than absolute essentials) before devastating losses occur, whole industries tank, bailouts occur, whatever?

Just a random musing, fwiw.

Thanks.

“Just” 12 months of Americans just buying necessities would collapse the world economy. Massive job losses all over the world, plant closures all over the world, runaway inflation and defaults on loans due to said inflation, interest rates so high no one could afford a loan, bank failures left and right, food shortages, etc. It would start a major snowball headed downhill, to put it mildly.

quote:

Originally posted by PowerSurge:
“Just” 12 months of Americans just buying necessities would collapse the world economy. Massive job losses all over the world, plant closures all over the world, runaway inflation and defaults on loans due to said inflation, interest rates so high no one could afford a loan, bank failures left and right, food shortages, etc. It would start a major snowball headed downhill, to put it mildly.

Where do you suspect the threshold is, then?

6days, 60days, what?

"When America sneezes, the world catches cold."

A quote borrowed from Klemens Wenzel Furst von Metternich.

quote:

Originally posted by 46and2:

quote:

Originally posted by PowerSurge:
“Just” 12 months of Americans just buying necessities would collapse the world economy. Massive job losses all over the world, plant closures all over the world, runaway inflation and defaults on loans due to said inflation, interest rates so high no one could afford a loan, bank failures left and right, food shortages, etc. It would start a major snowball headed downhill, to put it mildly.

Where do you suspect the threshold is, then?

6days, 60days, what?

One can only guess. I would say 30-60 days.

It helps if you follow the money.

Consumer spending falls, so the cash they'd otherwise have spent piles up in financial institutions. Financial institutions do more lending to put that money to work, so interest rates fall. More investments make sense at lower interest rates, so commercial/industrial investing increases. Capital goods get replaced, infrastructure gets rebuilt/expanded.

Bottom line: activity would shift from consumer goods to investment goods (property, plant, equipment, etc.). Job loss in the consumer sector, job gains elsewhere.

TL: DR Temporary dislocation, for sure, but no crisis.

quote:

Originally posted by joel9507:
It helps if you follow the money.

Consumer spending falls, so the cash they'd otherwise have spent piles up in financial institutions. Financial institutions do more lending to put that money to work, so interest rates fall. More investments make sense at lower interest rates, so commercial/industrial investing increases. Capital goods get replaced, infrastructure gets rebuilt/expanded.

Bottom line: activity would shift from consumer goods to investment goods (property, plant, equipment, etc.). Job loss in the consumer sector, job gains elsewhere.

TL: DR Temporary dislocation, for sure, but no crisis.

So as long as trust in banks remains, it mostly works out, as long as people aren't stuffing mattresses?

Interesting, and better.

quote:

Originally posted by joel9507:
It helps if you follow the money.

Consumer spending falls, so the cash they'd otherwise have spent piles up in financial institutions. Financial institutions do more lending to put that money to work, so interest rates fall. More investments make sense at lower interest rates, so commercial/industrial investing increases. Capital goods get replaced, infrastructure gets rebuilt/expanded.

Bottom line: activity would shift from consumer goods to investment goods (property, plant, equipment, etc.). Job loss in the consumer sector, job gains elsewhere.

TL: DR Temporary dislocation, for sure, but no crisis.

Why would businesses invest in property, plants, and equipment when they’re closing plants?

Remember, we’re talking if EVERY American only bought necessities for one full year. Do some research on what percentage of the US and world economy relies on disposable spending.

That type of spending decrease would make the Great Depression look like a walk in the park.

I think markets would adjust to keep consumers in the game. Its as if, any more we have periods of recession every 12 years or less. These times see consumers clamping down pretty tight on not needed spending. We would survive it for a year I believe. Either the cost of goods would rise to maintain profits for the top end or we would make do for a year living frugal. Cost of McDonalds fish sammiches would come down but they'd put less tarter sauce on them.. . If gas prices get taxed to maintain profits we would scurry back to the eco cars and park again the big drinkers untill things stabilized. I actually dont know what the hell I am talking about..

The American Economy is 60% Consumer Spending.

quote:

Originally posted by 46and2:

quote:

Originally posted by joel9507:
It helps if you follow the money.

Consumer spending falls, so the cash they'd otherwise have spent piles up in financial institutions. Financial institutions do more lending to put that money to work, so interest rates fall. More investments make sense at lower interest rates, so commercial/industrial investing increases. Capital goods get replaced, infrastructure gets rebuilt/expanded.

Bottom line: activity would shift from consumer goods to investment goods (property, plant, equipment, etc.). Job loss in the consumer sector, job gains elsewhere.

TL: DR Temporary dislocation, for sure, but no crisis.

So as long as trust in banks remains, it mostly works out, as long as people aren't stuffing mattresses?

Interesting, and better.

Yep. Mattress-stuffed cash does nothing. Saved cash gets redeployed, and keeps working.

Loss of confidence in banks, leading to lots of mattress-stuffing, went a long way to deepening/prolonging the Great Depression.

FDR is solely responsible for lengthening/deepening the Great Depression:

https://mises.org/library/hoover-roosevelt-depression

American consumers are not a monolith. We don't act as a single entity. Many don't have the resources to "cut back". Their income doesn't come from honest work, but instead from "government largess". Those individuals won't act the same as those who work for their income.

Many of us cut back from time to time. Its done for any number of reasons, from job loss to just getting fed up with the over hyped junk we're expected to purchase. I've been doing that now for quite a while just because I'm tired of all the stuff that I don't need or want. Every day I'm offended at the wasteful advertising that bombards me. We go to the mail box and see ads for things I couldn't possibly see a reason to purchase.

But I do my duty and go through the handful of junk mail, then throw almost all of it away. Or my wife does because she knows the things I might want to look at and tosses the rest in the round file in the corner. My checking account swells because what I see doesn't interest me.

Then I open my laptop and the same thing takes place. Cheap advertising that doesn't interest me. Scams mostly, or that's what I think. While I'm doing that the phone starts ringing. They're wasting their time. I know they have to do it, or want to. But as soon as they welcome me for being a Visa or Mastercard holder, I hang up. No, I don't want to change healthcare providers. And I surely don't want a crappy new car of the kind being foisted upon us. It doesn't interest me in the slightest. I'm relieved when the next caller of the dozen or so a day is muy gunshow buddy Joe. Finally someone who doesn't want to scam me, but just wants to talk.

The economy has gotten to the point where I don't want to invest in things I perceive as carrying a fair risk and for little return. Until all that stuff corrects, my money is just going to sit. I know this will sound cheap, but I can live on my monthly SS. So can my wife.

What will happen when enough of us reach that point will be interesting. We still go out to eat but don't have to. I've moved to leaving generous tips for good service, but I'm starting to think I need to stop leaving much for lousy service. Some people/workers are just in the wrong line of work. It might be all they can do, but they need to develop other skills. I kind of envy the invaders from the south. At least they want to work and try. I can't get over the idea that they are ugly Central American's. But our government gives away too much just to buy votes to stay in office. Repeat the idea they're in the wrong line of work (political workers and bureaucrats.)

Simple economics says as we stop buying stuff the purveyors will do one of two things. They'll either lower the prices or boost advertising. They'll try both. The weak minded who don't earn their money will become covered with tatoos or take up even more drugs. Then they'll crash the Caddy they drive because they can't seem to get any of the new electronics to work. Poor people have poor ways. When the elected officials try giving even more stuff away, recession will deepen.

They'll try to figure out how to tax my savings to give it to the unworthy. I'll figure out a way to hide or shelter it. But someone who will be identified as a genius will find a product that I like and will offer it at a price that's attractive to me. Then the downturn will end.

quote:

Originally posted by PowerSurge:
“Just” 12 months of Americans just buying necessities would collapse the world economy. Massive job losses all over the world, plant closures all over the world, runaway inflation and defaults on loans due to said inflation, interest rates so high no one could afford a loan, bank failures left and right, food shortages, etc. It would start a major snowball headed downhill, to put it mildly.

My bachelors is in Economics from a small liberal arts university in (adjacent to really) Palo Alto, CA. My Econ 1 prof was Michael Boskin, who had to have a sub teach several classes for him while he was off in Washington advising President Reagan. It was just a BA, and I wasn’t a very good student, taking way more computer science classes than Econ classes, and working in the computer center. At that time Stanford didn’t have an undergraduate CS degree, feeling at was too narrow. At least that was their excuse at the time.

The two main things I learned in Econ though, are: 1) If you ask six economists, you’ll get at least seven wildly different answers, and 2) Those answers will be derived from models with so many assumptions as to render them meaningless. For example, “If you assume that the government and the Federal Reserve won’t freak out and further lower the interest rate to try to stimulate spending and <47 other assumptions>, then <some not even scientific wild-assed guess>.

That said, my first reaction was that you are 180 degrees wrong on inflation. Price Inflation comes when too much money is chasing too little product. Wage Inflation comes when the labor market is to tight and employers have to bid for workers. Interestingly, the Federal Reserve (Fed) “printing” money* like it is going out of style to try to stimulate the economy has caused some price inflation, but not as much as one might expect. The Fed tends to raise interest rates to tamp down “irrational exuberance” and “pump the brakes” on/an economy that is “overheating” or heading toward more inflation than desired. The Fed tends to lower rates and or increase the money supply to attempt increase economic activity when the economy slows and starts to look like it is heading toward a recession.

The Fed can’t lower the interest much more without causing serious problems for the banks. I’m not sure how parts of Europe and Japan have managed to get away with negative interest rates, but I expect that if they tried that here there would be bank runs as folks took all their money out to take home and stick in the mattress, where it might still be ravaged by inflation over time, but at least you wouldn’t be paying someone money to take your money and leave you as their unsecured creditor while they use it to make risky loans to others to try to make money on the interest. There is always a significant spread between the rate the bank charges to loan money (usually secured, though sometimes poorly) and rate they pay to borrow (unsecured).

You wouldn’t think that the Fed would raise interest rates much either as the interest on the national debt is already a big part of the federal budget and the government is already borrowing another trillion or so each year just to make ends meet. Additionally, for the last several years every time they have raised interest rates the economy has slowed and the stock market has had the vapors.

Given the bailouts and QE done post 2008, the Fed (and the Federal government) is kinda boxed in a corner without a lot of tools available to do much in either direction.

Joel9507 makes a lot of sense, except the banks can’t lower the rates they are paying much without those rates going negative. If rates go negative, hello mattress. If hello mattress, things will get quite sporty in a fractional reserve banking system. They may have some room to lower the rates they are charging, but that will squeeze their margins. As he points out, rates get lowered to spur investment, but investors invest in factories to build widgets when they have an expectation that they can sell those widgets for a profit. If the consumers take their ball and go home, not a lot of folks will be borrowing money (at least at non-negative interest rates) to build factories to build widgets for these consumers that aren’t buying anything.

Given our government’s unending desire to #$*& with everything (the phrase, “Do something even if it’s wrong!” comes to mind), I can see the government deciding that a massive public works project like FDR’s New Deal is just what we need to get the economy going again. Heck, they might decide Absolutely Occasional Cortex’s “Green New Deal” isn’t as mind boggling stupid as any rational person knows it clearly is. Now how they’d fund this adventure might be an interesting question. If the US consumer takes his ball and goes home and the worldwide economy slows dramatically, who’s going to have spare cash laying around that they want to lend to the world’s largest debtor?

I’d be really comfortable predicting some definite change if the hypothetical the OP posted came to pass. I wouldn’t begin to hazard a guess on the direction of that change.

For those interested, the American Institute of Economic Research just four days ago addressed the errors in the Keynsian 'paradox of thrift' theory wherein a proclivity to save on the part of the consumer is mis-assumed to be a crisis.

I don't believe it's behind a paywall, and it's a good, if lengthy, read. The “Paradox of Thrift” Myth Is Back, Again

quote:

Originally posted by joel9507:
For those interested, the American Institute of Economic Research just four days ago addressed the errors in the Keynsian 'paradox of thrift' theory wherein a proclivity to save on the part of the consumer is mis-assumed to be a crisis.

I don't believe it's behind a paywall, and it's a good, if lengthy, read. The “Paradox of Thrift” Myth Is Back, Again

Not that long, and yes a good read. Thanks!

My phone is from 2014, my truck from the '90s, etc.
If every American was like me for a year I don't think it would end well. If they were like me for the same amount of time as I've been, then I think about all you could count on is physics because everything else would be different.

So, if it was all at once, yes, there would be a sudden collapse. Not sure how it could happen, barring a serious catastrophe- say like a massive die off, etc.

It would probably cause a shift toward more innovation- focus on improved productivity, etc.

I suspect most consumerism comes from lower income brackets.

People are always going to spend a certain amount of money. If it’s not in silliness, I guess they’d spend it on quality.

In the immortal words of Hillary Clinton...."What difference does it really make?" Americans are hooked on consumerism and excess. That is never going to change.